Tax implications of waiving rent

6 Replies

Hi, I posted in the landlord section but this might be better. I am in the midst of an eviction and am considering waging some rent to end the matter. Is waiving rent  the same as a loss? 

@Les Jean-Pierre

Ideally, if they skipped or just didn’t pay and you evicted, you aren’t getting rent so it’s a loss. If you wave it (in lieu of eviction), then you are not collecting what is owed and is a loss ( but.... ). Now here comes the but, you had the opportunity to collect it and waved it (you gave up collection opportunity and gave them a get out of jail free card), albeit they likely would not pay you and would love you to wave it so they don’t have a mark against them.

If you are in the midst of eviction I would continue with it. My opinion. All states differ but I would think you keep the security in light of them not paying in the first place. You also need to check how your contract is worded. I find with every tenant exit good/bad/indifferent, I add something to my addendum to cover me.

@Les Jean-Pierre

Unfortunately, you cannot deduct your monthly rent as a loss when you dont get paid. 

Yeah, I was not too optimistic. But, had to check. Thanks

Originally posted by @Les Jean-Pierre :

Yeah, I was not too optimistic. But, had to check. Thanks

You effectively have an economic loss, but not a tax loss. You never brought the rent into income since you are presumably a cash basis reporting taxpayer, so not having taken it into income you would have no basis to declare a loss. If you had accrued the rent and taken it into income, and then you waived it you might be able to take a loss.

As individual taxpayers - we run on a cash-basis method of accounting.

Waiving rent means that we never collected the rent. 
We would report as rent collected - the total amount of rent we collected throughout the year.
We would also be entitled to claim all the expenses that we had throughout the year.

We would report a likely higher taxable loss without the rent than if we had collected it. So the IRS does provide us some relief in that aspect.

Basit Siddiqi, CPA
917-280-8544

@Les Jean-Pierre

It looks like you feel you got some kind of a lousy deal from the IRS. You did not. All is perfectly fair.

Say, your monthly rent is $1k. If you collected rent for every month, you report $12k income and pay taxes on $12k. (Well, minus expenses, obviously, but I'm just oversimplifying my example.)

If you waive one month, then you only receive $11k, and you report $11k income, and you pay taxes on only $11k. See - this $1k "deduction" is already built in!

If you now attempt deducting $1k as some "loss" - you would report $10k income while you actually collected $11k. See how this would be double-dipping?

Again - everything is fair, you're not short-changed.

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